The credit rating company may “see some positive rating
actions” in the next six months as defaults by so-called
distressed developers, such as Greentown China Holdings Ltd.,
are less likely after asset sales, S&P said in a report
yesterday.

Prices for newly constructed homes in China rose in fewer
cities in August than the previous month, reducing the
likelihood that policy makers will take further steps to
constrain property prices as growth in the world’s second-biggest economy cools. S&P maintained its negative outlook on
the sector, citing uncertain prospects for sales recovery as the
government keeps restrictions and as profit margins narrow.

“The credit outlook for Chinese property developers is
less negative now than it was six to 12 months earlier,” S&P
said in the report. “An improvement in general credit
conditions will increase the availability of mortgage loans for
first-home buyers and boost liquidity” for construction loans.

China’s home prices rose for a third month in August,
SouFun Holdings Ltd., the nation’s biggest real-estate website
owner, said on Sept. 3, after the central bank cut interest
rates this year to stem an economic slowdown and some local
authorities eased curbs as land-sale revenues fell.

Spill Over

Some funds “are likely to spill over the real estate
sector” as the government increases spending to boost growth,
according to S&P.

The measure tracking property stocks on the Shanghai
Composite Index lost 0.2 percent, the only industry gauge to
post a decline today. That pared gains this year to 4.8 percent,
compared with the 6 percent drop in the benchmark index.

The government has raised down-payment and mortgage
requirements in its more than two-year effort to curb the
property market. It also imposed a property tax for the first
time in Shanghai and Chongqing, increased construction of low-cost social housing and enacted home-purchase restrictions in
about 40 cities.

Thirty-five of 70 cities covered by the National Bureau of
Statistics had price gains in August from the previous month,
compared with 49 in July, according to a release in Beijing
yesterday. The value of home sales transactions rebounded by 0.6
percent in August after dropping 14.5 percent in July from June,
the bureau said.

“The selling price could still be under pressure because a
lot of inventory is coming into the market,” Bei Fu, S&P’s Hong
Kong-based property credit analyst, said on a conference call
today. “The pent-up demand may have been partially absorbed,
continuing to put a lid” on prices.

Developers will show signs of squeezed margins “in the
next one to two years” because of sector-wide price cuts and
promotions since 2011, according to the S&P report, citing the
timing difference between contract sales and recognition of
sales proceeds.

Greentown, the biggest builder in eastern Zhejiang province,
sold 14 projects since November as it seeks to improve cost
controls and bring down its debt level, the company said last
month.